US jobless level climbs, boosting rate cut hopes

Hopes of a cut in US interest rates were boosted yesterday after official figures showed unemployment in the world's largest economy climbed to its highest rate in almost nine years in May.

The department of labour said so-called non-farm payrolls fell by a smaller than expected 17,000 last month, but the number of Americans out of work still hit 9 million, 6.1% of the workforce - the highest rate since July 1994.

After the European Central Bank administered a half-percentage point interest rate cut on Thursday to boost the sluggish eurozone economy, analysts said the Federal Reserve could be ready to reduce rates at its next meeting.

"At best, the economy appears to be stabilising: there are no signs emerging of a strong recovery," said Paul Ashworth, international economist at Capital Economics. "We continue to expect that the Fed will lower rates again on June 25."

The breakdown of the data showed 53,000 jobs were lost in the US manufacturing sector in April as the sharp cutbacks in investment which followed the dotcom boom continued to take their toll. The department of labour said manufacturing firms had laid off 2.6m staff - 15% of their total workforce - since mid-2000.

The job cuts in industry were more than offset by expanding employment in financial and professional services in May - and a strong rise in temporary jobs of almost 60,000.

The labour department also presented a more positive picture of the employment situation earlier in the year, revising its first estimate of 48,000 layoffs in April to nil.

"The bad news appears to be getting less bad each month," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

The US economic recovery was put on hold earlier this year as oil prices rose and confidence wobbled in the build-up to military action in Iraq. But the Federal Reserve is hoping that the end of hostilities will bring a "Baghdad bounce".

Fed chairman Alan Greenspan sounded a note of caution this week, saying it was "too early to get any real fix on the American economy in the period ahead".